TxDOT Internal Audit Report
Inventory Management
Objective
To review district inventory management practices and maintenance to include physical
inventory, planning and safeguarding.
Opinion
Based on the audit scope areas reviewed, control mechanisms are unreliable in
addressing risk factors and exposures considered significant relative to impacting
operational execution and regulatory compliance. The organization's system of internal
controls does not provide reasonable assurance that key goals and objectives will be
achieved. Control gap corrections are pervasive and resulting in material negative
impacts to the organization. Progress can be made within 2 quarters in addressing the
highest risk areas.
Overall Engagement Assessment
Unsatisafactory
Findings
Title
Control
Design
Operating
Effectiveness
Rating
Finding 1
Inventory Valuations
x
x
Unsatisfactory
Finding 2
Performance Goals
x
x
Unsatisfactory
Finding 3
Finding 4
Stock Adjustments
Material Movement in System of Record
x
x
x
x
Unsatisfactory
Needs Improvement
Finding 5
Finding 6
Inventory Access
MSMS Access Control
x
x
x
x
Needs Improvement
Needs Improvement
Management concurs with the above findings and prepared management action plans
to address deficiencies.
Internal Environment
The General Services Division (GSD) is the office of primary responsibility for inventory
practices and support. They have developed reports for every district and the stock
section within each district. These reports are used by local management to monitor the
performance of inventory through specific measures, including but not limited to:
potential surplus, long supply, inventory accuracy rates and stock adjustment rates.
Turnover at the district level has impacted inventory practices by eliminating the
independent and oversight roles once provided by accounting personnel. Personnel
visited were open to suggestions for improvement.
TxDOT Internal Audit – Region / District
Inventory Management
Summary Results
Finding
Scope Area
1
Inventory
Accuracy,
Valuation and
Safeguarding
2
Performance
Metrics & Root
Cause
Analysis
3
Inventory
Accuracy,
Valuation and
Safeguarding
4
Inventory
Accuracy,
Valuation and
Safeguarding
5
Inventory
Accuracy,
Valuation and
Safeguarding
6
Inventory
Accuracy,
Valuation and
Safeguarding
Evidence
Results of a spot count and inventories reviewed resulted in:
 174 of 216 (81%) various inventory items had differences in the
quantities on hand vs. the expected quantity. Variances
totaled $3,088,798
 Inventories were not performed periodically as noted:
o Quarterly, 18 of 35 (51%) stock sections
o Monthly, 13 of 35 (37%) stock sections
o Annual, 13 of 105 (12%) physical inventories were not
performed or documentation was not available
 2 of 42 (5%) annual certifications for physical inventories were
submitted without all the inventories in the district having been
performed
 5 of 140 (4%) stockpiles with a unit measure of “ton” were
instead counted by measuring volume in “cubic yards”
 4 of 140 (3%) stockpiles were not able to be measured
 1 of 35 (3%) stock sections carried inventory not within their
control
Analysis of Long Supply and Potential Surplus reports generated
demonstrates stock sections are not meeting goals:
 28 of 35 (80%) stock sections do not meet the long supply goal
 22 of 35 (63%) stock sections do not meet the potential surplus
 21 of 35 (60%) stock sections were unable to provide
documentation to support management of inventory goals
As of March 31, 2013, for the 14 districts audited, Reclaimed Asphalt
Pavement (RAP) comprised 15% of total inventory; 83% of this RAP is
considered Long Supply (not to be used in next 12 months)
Review for the processing of annual physical inventory discrepancies
noted:
 52 of 92 (57%) annual physical inventories had discrepancies
that were not processed according to policy
A review of unapproved material transactions indicates 311
unapproved transactions from October 1, 2012 to April 24, 2013 with a
total value of $685,402.
In addition material requests, and material issues indicated:
 75 of 604 (12%) material issues did not have proper approval
 15 of 151 (10%) material requests did not have proper
approval
One of 35 (3%) stock sections across 14 districts reviewed had keys
accessible to all employees for their stockrooms; this section had
$817,094 of $5,566,168 (15%) of that district’s total inventory as of
March 31, 2013
MSMS was reviewed in 11 of the stock sections
 26 of 117 (22%) individuals with “User” access (i.e.,
create/modify/delete ability) were external to the stock sections
reviewed
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TxDOT Internal Audit – Region / District
Inventory Management
Audit Scope
The audit reviewed the inventory practices of 35 stock sections within 14 districts for the
time period ending March 31, 2013. Stock sections for the purpose of this audit are
defined as a 300 series stock account located within a district other than the district
warehouse. The audit included a review of the following:
 Issuance and receipt of inventory
 Performance of regularly scheduled inventories
 Stock Adjustments
 Inventory goals
o Potential Surplus
o Long Supply
In addition, a spot inventory was conducted at each stock section.
Maintenance sections comprise 81% of TxDOT’s inventory value, the majority of which
is roadway items. Inventory reviewed during this engagement represented $12,412,952
of $100,333,661 (12%) total inventory balance statewide of maintenance section stock
accounts as of March 31, 2013. The audit team reviewed 35 stock sections in 14
districts across the state.
The audit was performed by Alma Alvarez, Julie Atchison, Albert Bourque, Letta Hinton,
Keith Laird and Suzy Oviedo (Engagement Lead). The audit was conducted during the
period from March 12, 2013 to May 6, 2013.
Methodology
The methodology(s) used to complete the objectives of this audit included interviews of
key personnel, the review of inventory documentation for annual physical inventories,
quarterly and monthly spot inventories including the handling of stock adjustments
and/or discrepancy counts, performing limited spot inventories, observation of stock and
an analyses of sample documentation.
Background
This report is prepared for the Transportation Commission, TxDOT Administration and
Management. The report presents the results of the Inventory Management Audit which
was conducted as part of the Fiscal Year 2013 Audit Plan.
GSD provides support to TXDOT in many areas, one of which is providing policy,
procedure and analysis guidance for consumable inventory and stock management.
GSD is also responsible for the Materials and Supply Management System (MSMS), an
automated real-time inventory management application. This system currently provides
the tools for accountability of materials throughout TxDOT. Beginning in September of
2012, materials issued to the roadway were processed through the Maintenance
Management System (MMS) which interfaces with the Materials and Supply
Management System and updates stock balances. As of March 31, 2013, there were
approximately four hundred stock accounts throughout the state. At the local level,
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Inventory Management
supervisors are responsible for assuring the accurate recordkeeping of materials
received, issued and currently in stock.
We conducted this performance audit in accordance with Generally Accepted
Government Auditing Standards and in conformance with the International Standards
for the Professional Practice of Internal Auditing. Those standards require that we plan
and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
A defined set of control objectives was utilized to focus on operational and regulatory
goals for the identified scope areas. Our audit opinion is an assessment of the health of
the overall control environment based on (1) the effectiveness of the enterprise risk
management activities throughout the audit period and (2) the degree to which the
defined control objectives were being met. Our audit opinion is not a guarantee against
operational sub-optimization, or regulatory non-compliance, particularly in areas not
included in the scope of this audit.
Best Practices
The San Antonio MSMS Coordinator is going above and beyond his established role
and responsibility of monitoring and information/communication by providing an
additional packet of charts/graphs and highlighting sections within their district that
exceed the long supply and/or potential surplus goals set by GSD. The monthly packet
includes a copy of the current long supply report and potential surplus report for each
section that are to be monitored for increasing value and to reiterate the goal(s) to be
achieved. He further identifies the line items that may be contributing to the high rates
so that they can be followed up on. This information is provided to the Maintenance
Supervisor, the Business Services Coordinator, the Deputy DE, and the local audit
office. In addition, he has put together local procedures to coach new employees and
supervisors in the handling of inventory.
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Inventory Management
Detailed Findings and Management Action Plans (MAP)
Finding No. 1: Inventory Valuation
Condition
Various situations were found during fieldwork which contribute to the risk of an
inaccurate recording and subsequent valuation of inventory. These include:
 Inconsistent measuring of stock piles
 Non-segregated inventory between stock sections
 Inventories are not being performed or documented
 Annual certifications were submitted to substantiate the completion of inventories
although some inventories had not been performed
Effect/Potential Impact
Inaccurate inventory valuation and records increase the risk of misstated financial
reports and impact the availability of materials needed to conduct the normal course of
business.
Criteria & Cause
Criteria are established by the General Services Division (GSD) and the Finance
Division (FIN).
 The Materials and Supply Management System (MSMS) User’s Manual, Chapter
1, Section 3 - Accountability and Responsibility
o Accountability requires the keeping of accurate records of materials
received and issued and of the value of materials currently in stock.
o The warehouse manager is responsible for the items and quantities
represented on their stock records.
 Property Management Manual, Chapter 1 and Financial Management Manual,
Chapter 2, Section 9
o Physical inventories of all stock items are required at all warehouse stock
accounts (300 series) at least once prior to August 31 each fiscal year.
 The Materials and Supply Management System (MSMS) User’s Manual, Chapter
9, Section 2 – Spot inventories will be conducted
o Quarterly by an independent party
o The first and third quarterly spot can be waived if the stock section has
had three consecutive satisfactory inventories – unsatisfactory is defined
as 10% or more of errors on the number of line items counted, regardless
of the number of units in error
o Monthly by the stock section manager
 Property Management Manual, Chapter 1, Section 5 and the Materials and
Supply Management System (MSMS) User’s Manual, Chapter 9, Section 2
o The District Engineer is responsible for sending a letter to GSD certifying
that each annual inventory is complete
There is no standard procedure for measuring stock piles or for issuing quantities in
volume. Due to the shape and size of some stock piles, measurement was not feasible.
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Inventory Management
Employees also do not know how to convert cubic yards to tons and/or think the cubic
yard measure is close enough, even though this may impact inventory valuation
depending on the unit of conversion being used. Inventories not completed were due to
a lack of time by the responsible individual or a misunderstanding of where the
responsibility for performance resides.
Evidence
A spot inventory was conducted by the audit staff of at least 5 items valued at over
$10,000 within each section’s inventory including 216 inventory items, such as
Reclaimed Asphalt Pavement (RAP), aggregates, asphalt, limestone, emulsion, signal
supplies, signs and herbicides were selected. The spot inventories conducted from
April 1 to April 25, 2013, resulted in the following:

174 of 216 (81%) inventory items selected had differences in the quantities on
hand versus the expected quantity. Variances in quantity totaled $3,088,798 and
consisted of:
o $2,550,182 from stockpile inventory
• 4 of 140 (3%) stockpiles with an estimated value of $489,000 were
not measurable
• 5 of 140 (4%) of stockpiles with a unit measure of “ton” were
counted instead by measuring volume (or cubic yards) resulting in a
$18,555 difference
o $538,616 from asphalt, emulsion, concrete barrier, signal supplies,
signs/sign supplies, and herbicide inventories
Additionally, 1 of the 35 stock sections carries items on their inventory that belongs to
another section. These items carry a value of $317,630, which represents 38% of the
inventory for the stock section that should not be carrying those items.
Within each stock account, the last three physical annual, quarterly, and monthly
inventory documents were reviewed. For the 35 stock sections tested, this would
equate to 105 total annual inventories, of which, only 92 inventories were supported to
substantiate performance. The review of documentation resulted in the following:
Annual inventories
 13 of 105 (12%) annual physical inventories were not performed or
documentation was not provided for review
 80 of 92 (87%) annual physical inventories that were substantiated through
documentation did not use a “blind count” or the inventory worksheet to count
items (i.e., does not have populated inventory counts on the count sheet)
Quarterly inventories
 18 of 35 (51%) stock sections did not perform quarterly inventories
 7 stock sections for those who performed quarterly inventories did not utilize an
independent party outside of that stock section to do counts
Monthly spot inventories
 13 of 35 (37%) stock sections did not perform monthly spot inventories
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Inventory Management

A total of 42 annual certifications, 3 years for each of the 14 districts reviewed,
noted the following:
o 2 of 42 (5%) annual certifications for physical inventories were submitted
without all the inventories in the district having been performed
Management Action Plan (MAP)
MAP Owner: Andrew Chavez, Interim Director Support Service Division
MAP 1.1 - The Support Service Division will:
 Create a standardized cost effective stock pile inventory process for TxDOT
 Define roles, responsibilities and points of contact within the districts and division
 Conduct a pilot
 Implement a statewide rollout.
Completion Date: March 15, 2014
MAP Owner: Larry Seiler, Purchasing Specialist
MAP 1.2 - The Support Service Division will:
 Discuss with management of the cited district/maintenance section
 Segregate inventory items according to custodian responsibility
 Provide written guidance to all districts/maintenance sections
Completion Date: September 15, 2013
MAP Owner: Larry Seiler, Purchasing Specialist
MAP 1.3 - The Support Service Division will create and deliver stock management
training to districts to include:
 Conducting required inventories according to current MSMS polices
 Documenting required inventories according to current MSM polices
 Researching and documenting inventory discrepancies
 Adjusting inventory balances as required
 Providing secure access to stock accounts
Completion Date: November 15, 2013
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Inventory Management
MAP Owner: Andrew Chavez, Interim Director Support Service Division
MAP 1.4 - The Support Service Division will:
 Discuss and address with the management of the cited district/maintenance
section
 Ensure all managers know the consequences of violating ethics policy
Completion Date: August 15, 2013
MAP Owner: Andrew Chavez, Interim Director Support Service Division
MAP 1.5 - The Support Service Division will:
 Create and fill an Inventory Specialist Position within the Support Services
Division to be a central point of contact (POC).
 Ensure materials management policy adherence rest with each district and is
administered by the district engineer. This will be supported by layered POCs for
each district and maintenance section. The district POCs will be supported by the
SSD Inventory Specialist.
Completion Date: March 15, 2014
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Finding No. 2: Performance Goals
Condition
Performance reports made available by the General Services Division (GSD) and
Material Supply Management System (MSMS) reports are not being adequately utilized
in the management of inventory. Various goals set by GSD for inventory levels are not
being consistently met throughout the districts (i.e., salvage materials continue to be
collected despite being identified as Long Supply).
Effect/Potential Impact
Inventory is not being managed efficiently and effectively. This can lead to surplus
inventory, including obsolete items and those with an expired shelf life. Stock that is not
necessary to conduct TxDOT business in turn increases inventory levels. Inaccurate
representation of stock quantities can occur, causing materials to be unavailable when
needed and impacting the timeliness of work being completed. Additionally, space is
being designated for materials that are not required and employees are managing these
unnecessary stock items.
Criteria & Cause
Criteria are established by GSD and provided for use by the districts:
 Inventory Management Summary Memo issued October 20, 1995 establishes
performance goals
o Percent of Potential Surplus (Zero Demand) less than or equal to 5%
o Adjustment Rate less than or equal to 5%
o Inventory Accuracy Rate greater than or equal to 95%
o Percentage of stock exceeding 12 months’ supply less than or equal to
25%
 MSMS Manual establishes goals for
o Turnover ratio of 2.5 or 250% per year (Ch. 5, Section 9, pg. 5-48)
o Inventory Accuracy Rate of 95% (Ch. 9, Section 2, pg. 9-5)
 MSMS Manual requires the designation in writing of the MSMS Coordinator to
serve as a liaison with GSD (Ch. 1, Section 14, pg. 1-33)
 GSD Inventory Summaries
o Provide monthly reports broken down by region, district, and stock
account
o List the Inventory Value, Potential Surplus, Long Supply (with and without
RAP) and list the goals for Potential Surplus and Long Supply
o List the Adjustment Transaction Percentages and the Inventory Accuracy
Rates by stock section
The following possible causes have been identified:
 Limited direction and standardization of procedures
o MSMS manual provides mostly application instruction
o Policy is distributed across several manuals
o GSD has no authority in the district to enforce performance goals
o Structure of inventory management is not defined on the district level
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


o Training not provided or available
Perception is that inventory concerns are not a high priority in the districts
o Meeting inventory goals is not emphasized
o Administration has not been proactive in supporting inventory
management
Loss of personnel and functions not reassigned during the regionalization effort
Policy and directives are outdated
o MSMS Manual last updated in 2002
o District SOPs still refer to accounting as the owner of the inventory
process
Evidence
 Stock sections are not meeting performance goals established by GSD related to
Long Supply and Potential Surplus of inventory: As of March 31, 2013, for the 14
districts audited, Reclaimed Asphalt Pavement (RAP) comprised 15% of total
inventory ($9.3M of $62.6M); 83% of this RAP is considered Long Supply (not to
be used in next 12 months)
Analysis of reports generated on the date of fieldwork demonstrates
 28 of 35 stock sections did not achieve the long supply goal of 25% of their
inventory value
 22 of 35 stock sections did not meet the potential surplus (Zero Demand) goal of
5% of their inventory value
 21 of 35 stock sections were unable to provide documentation to support
management of inventory goals
Management Action Plan (MAP)
MAP Owner: Andrew Chavez, Interim Director Support Services
MAP 2.1 - The Support Service Division will
 Reorganize and update the MSMS Manual
 Train district POCs
 Create standard reporting processes to include what information to report,
recipients, format, frequency and delivery method
 Create best in class performance criteria to include what information to report,
recipients, format, frequency and delivery method
Completion Date: December 15, 2013
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Inventory Management
Finding No. 3: Stock Adjustments
Condition
Root cause analysis and follow-up procedures are not being performed for
discrepancies found in inventory counts. These discrepancies also may not be updated
as a stock adjustment in the Material & Supply Management System (MSMS).
Effect/Potential Impact
When stock sections are not processing stock adjustments, performance measures are
not reliable or indicative of the current standing. Not following through with stock
adjustments leaves inaccurate inventory counts in MSMS. This may initiate spending of
additional funds to restock items that are not accurately recorded. In addition, when
adjustments are made without root cause analysis being performed, corrective steps to
prevent future discrepancies may not be identified.
Criteria & Cause
The Property Management Manual Chapter 1, Section 5
 Stock adjustments will be processed any time a discrepancy is found between
the balance recorded in MSMS and the actual physical count in the warehouse
 An adjustment can reflect either a gain or loss of property
 Adjustments will be made only after adequate research has been conducted to
determine the cause of the overage/shortage
 Procedures for processing an adjustment using the Adjustment Program, Direct
Function IA1, are contained in the MSMS User's Manual, Chapter 9, Physical
Inventory
The MSMS User’s Manual Chapter 9, Section 5 – Policies states that the Warehouse
Manager, in conjunction with the designated team leader:
 Determines if the count was more or less than the balance shown on the
inventory worksheet
 Determines the dollar value of the overage or shortage
 Enters the overage or shortage on the original inventory worksheet next to the
item in question
Chapter 9, Section 6 – Batch Inventory Adjustments RJEJCL 38 2, requires that the
user document the reason for the adjustment
Many of the stock sections reviewed do not allow for stock adjustments to be made.
Sections do not know who is responsible in completing stock adjustments and how they
are being monitored. Some sections are misaligned and believe that if they fall within a
5-10% range of their stock item count, no adjustments are needed. Limited training
opportunities for personnel in this area are also a concern.
Evidence
For the 35 stock sections tested, this would equate to 105 total annual inventories, of
which, only 92 inventories were supported to substantiate performance. The 92 annual
physical inventories were evaluated to determine how discrepancies were handled.
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Inventory Management

52 of 92 (57%) annual physical inventories had discrepancies that were not
processed according to policy, including:
o 21 annual physical inventories with count discrepancies that did not
process any stock adjustments including:
• inventory overages totaling $44,261
• inventory shortages totaling $172,895
o 20 annual physical inventories did not indicate the cause for adjustment
o 11 annual physical inventories had discrepancies in which some (but not
all) of the discrepancies were adjusted. The remaining items not adjusted
included:
• inventory overages totaling $116,332
• inventory shortages totaling $417,942
Management Action Plan (MAP)
MAP Owner: Larry Seiler, Purchasing Specialist
MAP 3.1 - The Support Service Division will create and deliver stock management
training to districts to include:
 Conducting required inventories according to current MSMS polices
 Documenting required inventories according to current MSM polices
 Researching and documenting inventory discrepancies
 Adjusting inventory balances as required
 Providing secure access to stock accounts
Completion Date: November 15, 2013
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Finding No. 4: Material Movement in Systems of Record
Condition
Personnel are not completing the required data entry in the Maintenance Management
System (MMS) or “Compass” to ensure all materials are approved and updated in the
Material Supply Maintenance System (MSMS). Reconciliations are also not occurring
which is preventing inventory records from being updated.
In addition, material transactions to move inventory is processed without the required
signatures:
 Items were issued without a receiver signature
 Material requests had no approval signature
Effect/Potential Impact
Inventory records are affected by the untimely processing of work orders. The records
will indicate materials are on hand when in fact they have been consumed. This in turn
can impact the timeliness of maintenance work and reorder levels. There is a potential
for unexplained shortages and a loss of accountability when the required signatures are
not obtained.
Criteria & Cause
Criteria are established by the General Services Division and the Finance Division.
 The Materials and Supply Management System (MSMS) User’s Manual, Chapter
1, Section 3 - Accountability and Responsibility
o Accountability requires the keeping of accurate records of materials
received and issued and of the value of materials currently in stock.
o Every individual that uses MSMS is responsible for using the system
properly. Management is responsible for insuring that subordinates follow
MSMS policies and procedures. The warehouse manager is responsible
for the items and quantities represented on their stock records.
 The Property Management Manual, Chapter 1, Section 5 – MSMS Forms
o MSMS uses a series of TxDOT forms to document the movement of
material in and out of the warehouse and to adjust inventory.
o Signatures are required on all forms, either by the person issuing or
receiving the material.
TxDOT has shifted from MSMS to MMS for the majority of material issues. Personnel
responsible for data entry are not following up to ensure all approvals are made and/or
any errors are corrected. Work orders are submitted on a daily basis and should be
approved the same day or the following day. Until the material card is approved,
inventory records are not updated.
Evidence
A report of unapproved material transactions was provided on May 1, 2013 by the
Maintenance Division. The report indicates that 15 of the 35 stock sections sampled
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have a total of 311 unapproved material transactions from October 1, 2012 through April
24, 2013, with a total value of $685,402. Upon further review the following was noted:
 $434,837 of transactions has been unapproved for more than 30 days
 $591,567 of the total unapproved amounts were in two districts:
o Tyler district had $400,956
o San Antonio district had $190,611
 232 of 311 (75%) of unapproved material cards are in two districts:
o 128 of 311 (41%) unapproved material cards occurring in Pharr
o 104 of 311 (33%) unapproved material cards occurring in San Antonio
A review of Material Requests and Issues reveal:
 75 of 604 (12%) material issues did not have a receiver’s signature
 15 of 151 (10%) material requests reviewed had no approval signature
Management Action Plan (MAP)
MAP Owners: Ricardo Castaneda, P.E., Director of Operations, San Antonio District
Michael Schneider, P.E., Director of Operations, Tyler District
Pedro R. Alvarez, P.E., Director of Maintenance, Pharr District
MAP 4.1 - Schedule the following reports to be emailed to the Office Manager or Stock
Clerk on a weekly basis (Monday of each workweek):


“Unapproved Material Day Cards” (Current/Previous Pay Period)
Report will identify the Material Day Cards that are pending approval. Report
will be filtered to display TxDOT Unit, Work Order #, Work Date, Quantity, etc.
The Office Manager or Stock Clerk will review the report and initiate approval
for pending Material Day Cards.
“Material Day Cards with Errors” (Current/Previous Pay Period)
Report will identify the approved Material Day Cards with errors. Report will
be filtered to display TxDOT Unit, Work Order #, Work Date, Line Message
that identifies the error, etc. Discrepancies on Material Day Cards are to be
corrected within five (5) working days.
Completion Date: July 15, 2013
MAP 4.2 - MMS District Champion to reinforce all Work Orders for previous pay period
to be completed by the 4th working day of each month, unless otherwise approved by
the District. Work Orders are required to have Labor, Equipment and Material Day
Cards approved prior to completion. District Champion to generate “Segment 78 Work
Orders – OPEN” Report and coordinate with Maintenance Sections to identify Work
Orders that require completion.
Completion Date: July 15, 2013
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MAP Owner: Andrew Chavez, Interim Director Support Services Division
MAP 4.3 - Update MSMS Manual to include requirements for signatures and related
authorities. Include MMS issues in future training.
Completion Date: October 15, 2013
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Finding No. 5: Inventory Access
Condition
All eleven employees in the Austin Traffic Signal Operations section have access to
stockroom keys. The keys are located on a board in the signal shop which does not
provide any restricted access to the stockrooms
Effect/Potential Impact
Inventory levels may indicate materials are on hand in the Materials and Supply
Management System (MSMS) when in fact they have been consumed if/when an
employee does not properly account for the items. Accuracy of inventory records may
be impacted by the limited control of stock. In addition, there is a potential for
unexplained shortages, misused/misplaced items and a loss of accountability when all
employees have access to stockroom keys. This in turn can impact the timeliness of
maintenance work and reorder levels.
Criteria & Cause
Criteria are established by the General Services Division
 The Materials and Supply Management System (MSMS) User’s Manual, Chapter
1, Section 3 - Accountability and Responsibility
o Accountability requires the keeping of accurate records of materials
received and issued and of the value of materials currently in stock.
o Every individual that uses MSMS is responsible for using the system
properly. Management is responsible for insuring that subordinates follow
MSMS policies and procedures. The warehouse manager is responsible
for the items and quantities represented on their stock records.
 The Property Management Manual, Chapter 1, Section 5 – MSMS Forms
o MSMS uses a series of TxDOT forms to document the movement of
material in and out of the warehouse and to adjust inventory.
o Signatures are required on all forms, either by the person issuing or
receiving the material.
 The Financial Management Policy Manual, Chapter 2, Section 9 – Warehouse
indicates that warehouse stock is a current asset and all items on hand are
included in the accountable records.
Also from the United States Government Accountability Office (GAO) - Government
Auditing Standards, Revision 2011. June 2013.
 6.15c.”… Internal control serves as a defense in safeguarding
assets and in preventing and detecting errors; fraud;
noncompliance with provisions of laws, regulations, contracts or
grant agreements; or abuse.
 6.20 “…Controls over the safeguarding of assets and resources include policies
and procedures that the audited entity has implemented to reasonably prevent or
promptly detect unauthorized acquisition, use, or disposition of assets and
resources.”
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There is no one dedicated to oversee the issuance of stock at the time of distribution.
The keys are accessible to anyone who needs a stock item during the day or during
afterhours.
Evidence
Stockyards and rooms were reviewed for controlled access. Auditors reviewed local
processes regarding the safeguarding of stock inventory and how access to stock items
was controlled (e.g., locked stockrooms and stockyards, number/location of keys,
supervisory control, etc.)
One of 35 stock sections across 14 districts had keys accessible to the stockrooms by
all section employees. The lone unsecured stock section amounted to:
 $817,094 of $5,566,168 (15%) of the district’s total inventory value as of March
31, 2013
 Included approximately 300 stock items
Management Action Plan (MAP)
MAP Owner: Imelda Barrett, Director of Transportation Operations, Austin District
MAP 5.1 - Keys will be issued to the following people: Signal Shop Stock Account
Coordinator, Stock Account Assistant Coordinator, Lead Worker, Signal Shop
Supervisor, Transportation Operations Office Manager and the Facilities Maintenance
Supervisor. Additionally, a key ring with after-hours keys will be given to each of two
traffic signal standby employees before leaving for the day. These keys will be returned
the next morning and locked. Access to the key lockbox is limited to the Key Control
Coordinator (currently the Lead Worker) and Key Control Assistant Coordinator
(currently the Stock Account Coordinator).
MAP 5.2 - A log will be established and placed by the door to the stock account area.
Stock items will be issued under the guidance of the Stock Account Coordinator, Stock
Account Assistant Coordinator, or Lead Worker. If none of those people are present,
stock can be issued under the guidance of the Signal Shop Supervisor.
Afterhours, stock can be issued by standby personnel. They will complete the MSMS
forms and stock log. Information will be confirmed by the Stock Account Coordinator or
Stock Account Assistant on the next business day.
Completion Date: August 15, 2013
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Finding No. 6: MSMS Access Control
Condition
Any individual with “USER” access for a designated stock section can create, modify or
delete any MSMS transaction, including ordering. Employees were identified with
having access to MSMS without having a business purpose for it.
Effect/Potential Impact
There is a possibility for unauthorized transactions, collusion or use of the system for
personal gain.
Criteria & Cause
Criteria are established by the General Services Division and the Finance Division.
 The Materials and Supply Management System (MSMS) User’s Manual, Chapter
1, Section 3 - Accountability and Responsibility
o Accountability requires the keeping of accurate records of materials
received and issued and of the value of materials currently in stock.
o Every individual that uses MSMS is responsible for using the system
properly. Management is responsible for insuring that subordinates follow
MSMS policies and procedures. The warehouse manager is responsible
for the items and quantities represented on their stock records.
Roles and responsibilities have shifted among departments over the last several years.
Along with the changes, access and needs have changed. However, access has not
been reviewed.
Evidence
The requisition and purchasing process for roadway materials follows the steps below:
 Roadway materials are requested through the IM3 function of the Materials &
Supply Management System (MSMS).
 MSMS generates a paper document which requires an approval signature.
 MSMS generates a Warehouse Request (WR) which is then delivered to a
purchaser as a User Request (UR).
 The UR in the Automated Purchasing System is used to generate a purchase
order.
 Neither MSMS nor APS requires an approval within the system for these orders.
 Although material needs are identified as part of the One Year Maintenance
Plan, and the plan is subject to review and approval by the Area Engineer and
District personnel, at the time of order, there is no approval above the individual
entering the order including the office manager or the stock clerk.
MSMS access was reviewed for 11 stock sections throughout the Atlanta, Dallas, Ft.
Worth, Paris and Tyler Districts. A total of 117 employees with “User” access were
identified. Of these 117 employees, it was noted that:
 26 of 117 (22%) individuals were external employees to the maintenance section
in the district they had access to (i.e., accountants, purchasers, business service
coordinators and other district personnel).
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During testing it was determined that MSMS will update a warehouse request with the
purchaser’s name and user id if the purchaser rejects a transaction. The transaction
then appears as though the purchaser made the request. This can reflect a conflict of
responsibilities.
Management Action Plan (MAP)
MAP Owner: Andrew Chavez, Interim Director Support Services Division
MAP 6.1 - The Support Services Division will
 Have districts review and list changes to the current MSMS access list
 SSD will make changes and send confirmations to the users and POCs
Completion Date: September 15, 2013
MAP 6.2 - The Support Services Division will create a purchasing control segment with
the MSMS training program.
Note: Enterprise Resource Plan (ERP) will replace MSMS and APS on September 1,
2014.
Completion Date: March 15, 2014
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Observations and Recommendations
Audit Observation (a): Unidentified TxDOT property
 It was observed in four of the districts (Abilene, Austin, Houston and San
Antonio) that not all sub-locations had signage indicating TxDOT property.
Effect/Potential Impact: Unidentified property is open to shrinkage. The stockpiles
could be seen as discarded debris or available to the public.
Audit Recommendation: Sub-locations should identify stock as TxDOT property with
the proper signage.
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Summary Results Based on Enterprise Risk Management Framework
Closing Comments
The results of this audit were discussed with Interim General Services Director by
phone and with the Chief Procurement/Deputy Administration Officer in an exit
conference held on June 21, 2013. We appreciate the assistance and cooperation
received from members of the General Services Division, the Supply Services Division
and from district employees contacted during this audit.
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